EDGE Adopts Changes to Diversity Policy

By Madeline Faber

After six months of deliberation, the Memphis-Shelby County Economic Development Growth Engine has ratified a diversity policy for its five PILOT programs.

The adopted program requires that companies receiving financial incentives from EDGE spend with local and minority-owned businesses an amount totaling 25 percent of the construction costs plus 15 percent of the projected PILOT savings for the duration of the property tax freeze. Exceptional performance will earn a company up to two years on its PILOT. If a company fails to meet the spending requirements, EDGE will reduce the terms of the PILOT by 20 percent or two years, depending on which is less.

In January, EDGE intended to enact an updated Local Business Participation Plan, which requires that PILOT recipients spend with local and minority-owned businesses an amount totaling 15 percent of the project’s construction costs, plus 15 percent of the projected PILOT savings for the duration of the property tax freeze.

The increase from 15 percent to 25 percent of construction costs may seem minor, but that increase was backed by the interests of the local minority business community, namely the Business Contracting Consortium.

“It’s a compromise,” said Melvin Jones, executive director of the Business Contracting Consortium. “We got the 25 percent, but I think the (Greater Memphis) Chamber actually wanted it to be lower than that. But we didn’t get the 25 percent on the projected PILOT savings.”

“It was a great job to work out a balanced approach on this,” said Phil Trenary, president of the Greater Memphis Chamber.

When EDGE was established in 2008, the agency inherited an earlier diversity plan from its predecessor, the Industrial Development Board.

Under that program, companies were required to make a “good faith effort” to direct 25 percent of controllable local spend with local and minority-owned businesses. The execution was fuzzy and led to drawn out negotiations about what constituted a good faith effort.

In 2015, EDGE laid the framework for an updated Local Business Participation Plan that made contracting with local and minority-owned businesses a requirement with the necessary amount based on a formula. If a company did not meet the hard requirements, the PILOT benefits would be reduced.

The Greater Memphis Chamber spoke out against a mandatory diversity program, stating that it would make Memphis seem risky and would be a deterrent to prospective companies.

Over the next six months, a compromise played out between the big business interests of the chamber and the small business interests of the local and minority-owned business community. A diversity policy committee chaired by EDGE member Natasha Donerson worked to find a middle ground.

That discussion was heightened by other government groups coming under fire for their diversity spending policies. In December, the U.S. Census Bureau found that of all the revenue flowing through Memphis in 2012, black-owned firms only garnered 0.83 percent of those receipts. Women-owned firms earned 2.73 percent.

Two months later, a study commissioned by Shelby County government revealed that 88.3 percent – or $168.2 million – of county contracts went to white-owned businesses between 2012 and 2014.

According to data collected by EDGE, PILOT recipient spending with certified local companies fell short between 2012 and 2014. EDGE expected $147 million in local spending, but PILOT recipients actually spent $114 million.

EDGE staff said that the new policy will keep Memphis competitive in attracting companies and will result in more contracts for local and minority-owned businesses.

“I wouldn't say a consensus,” Donerson said. “It's the best compromise or balance of all the voices I heard.”

Minority interests also came under discussion at a Wednesday, June 15, meeting of the City Center Development Corp., an affiliate board of the Downtown Memphis Commission.

Jones, who serves on the CCDC and also actively lobbied for minority interests in EDGE’s diversity program, said he wants a required diversity spend applied to a $12 million grant privately donated to install LED lights on the Harahan Bridge and Hernando DeSoto Bridge.

The CCDC is the public face of the project and will manage all contract negotiations in the project, but it is not contributing any funds directly.

What emerges is a gray area where private money is being used to enhance the bridges, which was funded with public money, Jones said.

Any other project backed by the CCDC or the DMC would be subject to an equal business opportunity program, which works to secure 20 percent of project spend with local and minority-owned businesses.

“The group that brought this to us brought it to us with no intent of doing business with minority and women contractors,” Jones said. “We don't have to approve something we know is wrong, and we should debate that.”

Phillips Lighting has been selected as the electrical engineer for the project. A subcontractor was not named at the meeting.

Charles Carpenter, counsel for the CCDC, said that the project is tricky because Crittenden County owns 60 percent of the Harahan Bridge and the city of Memphis owns 40 percent.

Following those percentages, only $1 million would be set aside for minority participation under the DMC’s equal business opportunity program.

“In actuality, if we go forward the way things are projected, we will hit 20 percent,” Carpenter said.

“The project is not underway yet, so there's still opportunity for us to engage with minority-owned business in participation,” said DMC president Terence Patterson.